Do Guaranteed-Low-Price Policies Guarantee High Prices, and Can Antitrust Rise to the Challenge?
Posted: 15 May 1998
Price-matching policies can be highly anticompetitive. They allow firms to raise their prices above competitive levels by discriminating in price between informed and uninformed customers. The resulting high prices can persist even when new firms enter the industry, a fact that gives price matching the potential to be much more socially costly than an ordinary monopoly or cartel. At the same time, widespread entry implies that the agreement among sellers that is typical of a Sherman Act price-fixing case may be absent. This article argues that there is nonetheless an analogy between a seller offering (and agreeing) to match a price for a buyer and other buyer-seller agreements that violate the Sherman Act. This article also considers a wholly new avenue for attacking price matching, asking whether the price discrimination involved in matching violates the unfair-competition or price-discrimination laws. In so doing, this article examines whether price matchers should be able to protect themselves from such an attack with a "meeting competition" defense. Breaking with conventional wisdom, this article concludes that the defense should be rejected in cases in which meeting competition may significantly injure competition among sellers.
JEL Classification: K21, L40
Suggested Citation: Suggested Citation